NEW YORK (MainStreet) There's no two ways about it: If your credit score is below 600, it's time to consider how you're going to repair it. Still, once it gets that bad, you might not know where to begin; But repair it you must if you want to get good rates on your credit card, a home loan or even the apartment of your dreams.
Contrary to popular opinion, 600 is not a "magic number." Erik Larson, one of the founders of NextAdvisor.com, says there's not much different between a 599 and 601. "Your score can vary from week to week or even day to day depending on what the latest balance is," he said. Still, anywhere near 600 is a bad place to be. Here's how you fix it.
Step 1: Get Your Credit Report
John Heath, a directing attorney at Lexington Law, believes the first thing a person should do is pull his credit report from all three reporting agencies. Larson concurs: "The first thing you need to do is figure out why your credit is in the state that it's in."
Step 2: Get Rid of the Mistakes
The Federal Trade Commission reports that 5% of all credit reports have some kind of error on them. "You can write a letter to the credit agency," says Heath, "or you can just go to their website." What you want to do is investigate these items, then try and get them removed. "As you get items removed, you're going to start to see some upward movement," Heath says.
"We just came out of a holiday season with two major security breaches at two major retailers," he says. "Credit agencies are for profit and using your information to make money. Make sure that it's the correct information."
Step 3: Leave Your Mark On Your Report
Here's something most people don't know: you can put statements in your credit report telling your side of the story. Heath advises that you do this any time there's a dispute that you can't get removed. "You can make additions of approximately 100 words," he said. That's 200 words if you reside in the state of Maine. While your "statement" might of Twitter concision, it still allows you to get a word in -- and that can make all the difference.
Larson further states that in the event that you can't get something removed, a credit counseling service might be the answer. Remember to do your due diligence; There are a lot of shady outfits out there. But if you pick the right one, they can get some of the more difficult stains out of your credit report. Larson's website includes reviews of credit counseling services.
Step 4: Start Paying
"If you have a credit card you haven't been paying, it's important to get it in good standing," says Larson. The reason being that defaults are one of the worst things to have on your credit.
"Even if you can't pay them off, just making the minimum payment every month is going to help repair your score," Larson said.
One thing that you might want to also think about at this point is a settlement. Heath states that the average settlement that he sees with creditors comes in at about 20% less than the balance before the settlement. If you're really in over your head, that 20% can make a huge difference in terms of making your payments manageable again and putting you back on the road to solid credit.
Step 5: Get New Credit
A lot of people make the mistake of thinking that not having credit will help their credit improve. In fact, not getting new accounts that don't have a bad history is an important piece of repairing your credit. Larson recommends secured credit cards.
"There's a positive on there that looks the same as any other credit card," he says. "As the bad credit gets older, it's great to have something on there to establish a positive payment history."
He likens it to your GPA at college: "If you get all Ds your first semester, you're not going to graduate with a 4.0," he says. "But if you get good grades after that you're going to start seeing some improvement."
--Written by Nicholas Pell for MainStreet